Sunday, September 13, 2009

The latest lovefest: Securitization

Last week we had the securitization of life insurance as the new buzzword. $26 trillion of life insurance on the sidelines, and Wall Street wants to repackage these into bonds they can hustle, while taking a piece out of them. They are looking to get $500 billion worth of these sold; convincing the public to let someone else gamble on their life.

Who would sell an insurance policy to Wall Street, that was going to be left to their heirs if they thought they were going to die?

Goldman Sachs is even creating a life settlement index, allowing people to bet on life expectancy. They probably will even hire Sarah Palin as a consultant, since she's popularized the death panel!

But Wall Street needs to make up for the lack of mortgage securitization. After all, we know that AA sub-prime mortgage securitization from 2007 is worth .04 on the dollar, and AAA sub-prime paper from 2007 is worth .28 on the dollar. But they are trying. Now we have re-remics; the resecuritization of real estate mortgage conduits. But Wall Street securitized $941 billion of mortgage bonds in 2005, so they have a big hole to fill.So enter life settlements!

So now they are getting help. Look what San Franscico Fed President and CEO Janet Yellen had to say about securitization.

"Securitization is one of the great financial innovations of the last generation, it greatly expanded the market for these loans and reduced their cost. I think there is no question that securitzation of certain types of loans like subprime contributed to the crisis we had, but we have to be careful not to throw out the baby with the bath water." "Securitization markets will continue to play a major role in our financial system."

At the end of July, she had this to say to a bunch of bankers in Idaho:

Large budget deficits do not cause high inflation automatically. In fact, since World War II, large deficits have been associated with
high inflation only in developing countries. That’s because developing countries often have central banks that are under the sway of the government, which sometimes induces them to print money to finance government spending.

The connection
isn’t found in countries such as ours with advanced financial systems and independent central banks.

The United States and most other industrialized countries have central banks with long
traditions of independence and deep-seated support for keeping politics out of monetary policy. In advanced countries, the problem isn’t that large deficits cause inflation. Rather it’s that they raise long-term interest rates, thereby crowding out private investment, which holds back advances in productivity and living standards.

So which is it? The so-called "independence" of the Federal Reserve that doesn't want any transparency, or the bond viligantes that force their hand?

Is it any wonder that the above cartoon showed up in China's papers?

Is it any wonder why China is buying gold?

Janet wants to sell the world some more paper!

And so does Wall Street!

1 comment:

Anonymous said...

I wonder whose going to be selling protection on the paper!! hah